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Uber as Sales Tax Panacea?


 Cabs protest Uber in Portland.

The tension between traditional cabs and Uber is palpable, both in the United States and abroad. Uber’s exponential expansion has sparked protests worldwide: this summer taxis blocked roads in Paris, Rio de Janeiro, and Mexico City; more recently, protests have erupted in Brussels and Madrid. In addition to fights, police in riot gear, and tear gas, Uber has triggered injunctions against its service in several countries.

Where Uber is fully functional, local authorities are striving to figure out exactly how it should contribute to the tax base.

New York City

Certain types of transportation services became subject to New York state and local sales taxes as of June 1, 2009, when Uber was a fledgling start-up in San Francisco and cab drivers worldwide lived in ignorance of the disruption to come.

According to New York State Department of Taxation and Finance TSB-M-09(7)S, taxable transportation services include those provided by livery service with a driver, such as “limousines, black cars, and … community cars or vans.” Transportation services provided by taxicabs, buses, and scheduled public transportation, however, are exempt from the sales tax.

Yet in August 2010, the new tax on transportation services was amended when “New York City-based livery-car companies successfully lobbied to exempt” transportation both beginning and ending in NYC.  And in 2013, that tax policy was revised to exclude all “charges for transportation services that either begin or end in New York City.” See TSB-M-13(2)S for more details.

Uber

Uber has added approximately 19,000 vehicles to the black car industry since it opened in New York City in 2011 (NY Times). Today, although yellow cab rides are still the busiest type of car service in New York City, taxi rides are decreasing and Uber rides are growing.

Although Uber has lobbied to be excluded from sales tax like other New York City-based livery-car companies, its drivers do collect sales tax on intrastate trips “provided by vehicles affiliated with Black Car bases” (Uber New York City). The company’s New York general manager said in August that Uber will collect close to $40 million in sales tax in the first seven months of 2015.

Most of that revenue goes to state and city general funds. And the Metropolitan Transportation Authority (MTA) would like more of it to go toward closing the funding gap in the MTA.

Mind the gap

To that end, the Citizens Budget Commission (CBC) is proposing three options for changing taxes on transportation. The commission’s policy brief, “Taxis, Taxes, and the MTA Funding Gap,” describes the three proposals:

  • Expand coverage of per-ride taxicab tax
    • Taxis currently charge riders 50 cents per ride. Expanding that to all black car trips (that means you, Uber) could generate an additional $34 to $55 million by 2019.
  • Increase and expand per-ride taxicab tax
    • Switching the taxicab tax to a percentage rather than flat fee could generate between $73 and $117 million in 2019, as taxi fares have increased since the tax was instituted in 2011.
  • Transportation sales tax reform
    • Reducing the sales tax on black car transportation services (including Uber) to 5.75% and devoting the whole amount to MTA could “fund the shortfall in the MTA’s capital plan and provide a likely growing revenue stream for this purpose.”

Read more about the CBC’s proposals.

Having Uber and similar organizations collect more sales tax may not appease taxi drivers, but it would undoubtedly soothe the taxmen.

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.